Optimizing Rewards for Business Results

and Greater Employee Engagement

Lois Grubb, Vice President, Human Resources
Elmhurst Memorial Hospital
Eric Parmenter, Principal
Towers Perrin
August 4, 2009

2009 Towers Perrin

Presenters: Lois Grubb

Lois Grubb is Vice President, Human Resources for a 400+ bed
community hospital with more than 500 physicians and 3,000
employees. She reports to the CEO and manages a group of
17 HR professionals
Prior to that, Lois was Senior Vice President, Human Resources
for a $1.2 billion wholly owned subsidiary of AmerisourceBergen,
a Fortune 24 pharmaceutical supply chain management company.
Previously, she held HR leadership roles at Gundersen Lutheran
Medical Center in La Crosse, WI; CNA Insurance; GD Searle
and Co; and Mohr Development
Lois has an M.A. in psychology from Temple University, a B.A.
in psychology from Immaculate College and is an award recipient
from the Academy of Women Achievers, YWCA, City of New York.
Other credentials include the Executive Education Program in
Finance, Wharton School of the University of Pennsylvania, and
Executive Education in Strategy and Marketing, Tuck School of
Business, Dartmouth

2009 Towers Perrin

Presenters: Eric Parmenter

Eric Parmenter is a Principal in Towers Perrins Health and Welfare
practice. Located in the firms Chicago office, he has over 23 years
experience helping employers develop innovative total reward
strategies that align with their business objectives
Eric is a recognized national leader in health care benefit design and
delivery. He is a frequent moderator of panel discussions and speaker
at seminars across the country. Eric is also an award-winning author
of articles on human resource and employee benefit topics
Prior to joining Towers Perrin, Eric was Midwest practice leader for
compensation and benefit consulting at Grant Thornton LLP. He also
owned his own benefit consulting, outsourcing and administration firm
Eric holds a bachelor of arts degree in psychology from the University
of Illinois, as well as multiple professional designations in underwriting,
finance and human resources. Eric also holds an M.B.A. degree from
the University of Chicagos Graduate School of Business

2009 Towers Perrin

Todays discussion

Setting the Stage

Managing Talent in
Challenging Economic Times

Addressing Elmhurst
Memorials Issues:
Total Rewards Optimization

Key Learnings

2009 Towers Perrin

Signs that the global downturn is abating

U.S. Consumer Confidence Index improved in March and April

and rose to an eight-month high in May

Although unemployment reached 9.4% in the U.S. in May,

the rate of job losses decreased relative to prior months

DJIA and S&P 500 have advanced significantly since early March
January February losses were nearly offset
Housing sales were up 11% in June

2009 Towers Perrin

havent eased corporate concerns and caution

Most U.S. organizations in a recent Towers Perrin survey

project 2009 revenue declines

52% expect decreases of more than 5%
33% anticipate a drop of 11% or more
A Q1 Business Roundtable survey of 100 CEOs revealed pessimism
67% expect sales to decline in the next six months
66% plan to shrink capital spending
71% expect more job losses
Health care providers are concerned about the economy

and the implications of health reform both as an employer

and as a provider

Source: Towers Perrin Cost-Cutting Strategies in the Downturn, May 2009;

Business Roundtables Q1 2009 CEO Economic Outlook Survey
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Rising costs in a sinking economy mean

employers and employees take a double hit
Employees/Retirees Face
Shrinking income and purchasing power
Trade-offs between health care and

other necessities
Job stress
Unemployment
Capital losses
Delayed retirement

Employers Face
Unbudgeted cost increases due to
increased utilization of medical

and disability plans

increasing numbers of covered
dependents due to widespread layoffs
increased COBRA exposure
postponed retirements
Lower employee engagement
Lower productivity
New concerns about health reform

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As a result of the economic crisis, employers are accelerating

reward changes and/or moving in new directions
53% are trying or considering benefit strategies they would

not have considered otherwise

47% have closed their DB plans to new participants
Although less than 10% have suspended their 401(k) match,

another 20% are considering it

52% are increasing employees share of health care program costs
62% are tightening prescription drug coverage
38% of organizations are focusing more on cost reduction

than talent management

Most are holding the line on salaries by cutting merit budgets,

freezing salaries or delaying planned merit increases (in that order)

Source: Towers Perrin Compensation in Crisis Pulse Survey, January 2009; Towers Perrin Benefits in Crisis Pulse Survey, March 2009
2009 Towers Perrin

and reacting to changes in the economy

North American employers tell us employees are
Postponing retirement (68%)
Requesting financial education or retirement

planning (40%)
Using employee assistance programs (35%)

In the U.S. specifically, employers tell us

employees are
Moving to fixed-income investments (55%)
Increasing loans and withdrawals from

retirement savings plans (50%) or reducing

participation in these plans (44%)

Source: Towers Perrin Benefits in Crisis Pulse Survey, March 2009

2009 Towers Perrin

The outlook for health care and hospitals

Health care and education have been hit less than other U.S.

industries with fewer job losses

some hospitals are performing well given the economy
others hospitals are experiencing flat or decreasing revenues
Fewer dollars are being spent on elective procedures
Accounts receivable are growing, with more defaults on outstanding bills
Patients skip important screenings and tests due to insurance worries
Charitable care is increasing
Impending health care reform legislation creates significant

uncertainties for the future

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Today, hospitals face unprecedented

demands and new challenges
Employer Challenges
Sustainable growth and improved performance
Operating cost and risk pressures
Innovation and quality improvement
Employee engagement and patient satisfaction
Flexible, on demand workforce to address talent
shortages and gaps
Public relations and network contracting
New competition for labor

Market Forces/Financial Pressures

Demographic Forces

Ballooning accounts receivables

Reduction in elective care and some needed care
Intense competition and shrinking reimbursement
Governance pressures and regulatory oversight
Mounting regulatory pressures and opportunities
Transforming technologies and outsourcing
Collective bargaining activities
Consumerism payment strategies
Transparency and quality
Aging infrastructure and need to replace facilities

Aging workforce
Increasingly diverse workforce
Changing patterns of retirement
Increased job mobility
Talent shortages
Anticipated dearth of leadership

Employee Needs

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Financial security
Inspiring leadership
Challenging work
Involvement and control
Information and knowledge
Work/life balance
Physician experience and engagement
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Labor and related costs accounted for 62% of the

expense growth for hospitals (from 2001 to 2006)
Labor is now the single largest operating cost item typically equal
to more than 40% of revenue

Change in number of
services provided

Wages, salaries and employee benefits

41%

30%
Costs of goods
and services
purchased

62%
Prescription drugs

4%
Professional fees

3%
Intensity and other

8%

Professional liability insurance

2%
All other

12%

Source: AHA analysis of 2001-2006 expense growth rates by category

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The drivers of attraction, retention and

engagement for employees in health care
Top Attraction Drivers

Top Retention Drivers

Top Engagement Drivers

Competitive base pay

Satisfaction with the organizations

business decisions

Senior management sincerely

interested in employee
well-being

Competitive health care benefits

Ability to balance my work/personal life

Organizations reputation for social

responsibility

Vacation/paid time off

Understand potential career track within

organization

Seek opportunities to develop new

knowledge/skills

Flexible schedule

Good relationship with supervisor

Organization quickly resolves

customer concerns

Convenient work location

Can impact customer satisfaction

Organization rewards outstanding

customer service

Career advancement opportunities

Fairly compensated compared to others

doing similar work in my organization

Input into decision making in my

department

Reasonable workload

Organization quickly resolves customer

concerns

Can impact quality of

work/product/service

Caliber of coworkers

Unit has skills needed to succeed

Improved my skills and capabilities

over the last year

Reputation of the organization

as a good employer

People in my unit work well together

as a team

Unit has skills needed to succeed

Competitive retirement benefits

Senior management acts to ensure

organizations long-term success

Competitive career development

Source: Towers Perrin 2007 2008 Global Workforce Study, U.S. Hospital Cut, October 2007
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Todays discussion

Setting the Stage

Attraction and Retention in
Challenging Economic Times

Addressing Elmhurst
Memorials Issues:
Total Rewards Optimization

Key Learnings

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Elmhurst Memorial Healthcare (EMHC): Key issues

Community hospital located in western suburbs of Chicago
Three components to our business
acute care not-for-profit hospital
Elmhurst Clinic
home health/hospice
Compete in a crowded marketplace
Challenge of building a new hospital

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Begin with an integrated strategy framework

Business Context

Talent
Management

Employee Engagement

Strategic
Workforce
Planning

Measuring engagement
Understanding drivers of

engagement
Rewards and Recognition
Ensuring consequences for

performance and behavior

Understanding what different
segments value
Setting principles to guide decisions

Understanding linkage between

engagement and financial results

Performance
Management

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Recruitment

Training and
Development

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Positioning for business results: Its really about alignment

The Employment Deal
HR
Strategy
EMHCS
Mission, Vision
and Values

Monetary Total Rewards

Pay (base and incentives)
Benefits
Nonmonetary Total Rewards
Communication
Performance Management
Work Environment/Culture
Recognition
Leadership
Career Development

High levels of trust, commitment and loyalty

Employer-of-choice status

Outside recognition/awards

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The first step in EMHCs journey:

Focus on rewards benchmarking and optimization
Human Capital Optimization
Cost/Risk Reduction
Reduce expenditures and growth rate for

fixed-cost rewards
Eliminate programs with low perceived value
Streamline reward practices for greater efficiency

Rewards
Optimization

Performance Enhancement
Increase the variable component of rewards
Redirect the overall reward spend toward

pivotal roles
Ensure transparency of reward system practices
Strengthen manager effectiveness and support
system

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The chosen reward changes and implementation plan

will be based in part on the answers to a series of questions
Considerations
Is the reward mix
appropriate for
employees and
the company?

Framing the Issues

Is EMHCs current emphasis on fixed-cost rewards hampering business

performance and flexibility? Do employees appreciate the level of security

provided? Would greater emphasis on variable pay better attract critical skills?
Are employees behind the curve in preparing for retirement and taking

responsibility for their health?

How competitive are
EMHCs rewards
versus the market?

What is the desired competitive position for rewards overall, and by component?

Do rewards align
with desired
business
performance?

Are metrics underlying incentives consistent with goals for growth

Are there reward trends that could help attract and retain critical talent?
Is EMHC within acceptable cost levels versus competition for customers?

and profitability?
Do employees have a clear line of sight to what drives business performance,

and do rewards reinforce the right behaviors and decisions?

Is the distribution of reward spend across roles reflective of their pivotal nature?

What workforce
disruption risks
are acceptable?

How will reward changes impact employee engagement? Given key

engagement drivers, can we navigate change to minimize disruption?

Can the reward portfolio be restructured to balance cost and employee

perceived value?

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Understanding what attracts employees and the

key elements of the work experience that motivate
employees will be critical to success
Age
Under 25

Ages
25 to 34

Ages
35 to 44

Ages
45 to 54

Age 55
or Older

Competitive base pay

Competitive health care benefits

Vacation/paid time off

Flexible schedule

Career advancement opportunities

Competitive retirement benefits

Attraction Drivers

Source: Towers Perrin 2007 Global Workforce Study U.S. Hospital Industry

Top Motivation for Work Overall

Top Motivation for Work Hospitals

Having good work/life balance (69%)

Having good work/life balance (70%)

Having a secure position for the long term (61%)

Having a secure position for the long term (63%)

Having adequate benefit protection (58%)

Having adequate benefit protection (63%)

Doing exciting, challenging work (49%)

Doing exciting, challenging work (50%)

Maximizing earnings (47%)

Maximizing earnings (48%)

Note: Percentages represent percentage of respondents including item in their top 5.

Source: Towers Perrin 2007-2008 Global Workforce Study, U.S. and U.S. Hospital Cut, October 2007
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The challenge is to build people programs

that create competitive advantage
Optimal reward programs will attract, retain and engage employees
and drive quality and operational performance
2008 Focus Transactional Rewards
People Programs
and Processes

Employee
Behaviors
Attracting the right

talent
Pay

Benefits

Engaging talent in the

right behaviors aligned

with a desired culture
Motivating talent to be

Learning
Work
and
Environment
Development

healthy and productive

Patient Satisfaction/
Quality of Care

Operational
Performance

Loyal

Improved productivity

Informed consumer

Improved financial and

Effective decision

making/compliance
with care
Consistent with the

Retaining the right

talent

clinical performance
benchmarks
Reduced costs
Competitive advantage

hospitals clinical and

quality initiatives
(quality, safety and
cost-effectiveness)

2009 Focus Relational Rewards

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The rewards landscape: The evolution

Pay

Benefits

Transactional Rewards
Short-term focus
Critical to attracting top talent

Learning and
Development

Work
Environment

Relational Rewards
Long-term focus
Critical to retaining top talent
In the long run, relational rewards provide a higher ROI

% ROI

Maximizing Return on Reward Investments

Investment in Relational
Rewards Work Environment
and Learning and Development

Superior Returns

Investment in Transactional
Rewards Pay and Benefits

Competitive Returns

$ Investment
Fair/Reasonable
Investment

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Additional
Investment

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Getting started at EMHC: Employee engagement survey findings

Input from the employee engagement survey provided focus

to the strategy and implementation

For EMHC input about pay and benefits led us to conduct

an analysis of EMHCs base-pay practices

Towers Perrin conducted a review of EMHCs benefits

and their market competitiveness

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What are the engagement mindsets at EMHC?

Disengaged
16%

Fully Engaged
25%

Complacent
59%

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On the pay front, how does EMHC compare

with other local health care organizations?
Base Pay
Of the 50 EMHC Positions Surveyed, the Majority Were
Either at Market or at the High End of Market
Higher end of market

At market

Lower end of market

Source: Metropolitan Chicago Healthcare Council (MCHC)

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All EMHC benefit programs were

benchmarked against the market
Benefits
Medical
Dental
Vision
Short-Term Disability
Long-Term Disability
Basic Life/AD&D
Voluntary Life/AD&D
Pension
403(b) Savings
EAP
Paid Time Off
Lower end of market

At market

Higher end of market

Source: Towers Perrin Competitive Benefits Review, 2008

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EMHC tactics/program changes reflect the strategy,

employee input and program performance assessment

Pay

Pay

The
Learning Deal
and
Development

Benefits

Work
Environment

Pay and Benefits Transactional Rewards

focus for 2008 and early 2009
Learning and Development and Work Environment

Relational Rewards
focus for the balance of 2009 and 2010
Early results of engagement pulse survey

are promising

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Early results of engagement pulse survey are promising

My supervisor used the feedback to make changes
59% favorable EMHC
57% favorable healthcare norm
All in all, Im satisfied with my job
80% EMHC 2009
69% EMHC 2007
73% healthcare norm
I understand how my benefits compare
64% favorable
62% healthcare norm
I understand how my wages compare
61% favorable
I understand how my performance impacts the organizations

performance
91% favorable
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Introduce a new employer-employee partnership

Hold employees
accountable
to perform, based
on company values

In return, provide
a comprehensive
total rewards program

Together,
we will deliver
stellar results
Outstanding clinical

quality/outcomes
Partnership

Pay

Benefits

Respect
Integrity
Determination
Excellence

Exceptional patient

satisfaction

You
Learning
and
Development

Work
Environment

Strong financial

performance
Significant market

growth
Safety at the core

of all we do

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Todays discussion

Setting the Stage

Attraction and Retention in
Challenging Economic Times

Addressing Elmhurst
Memorials Issues:
Total Rewards Optimization

Key Learnings

2009 Towers Perrin

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Key learnings: Managing the partnership

and moving forward together

Create a comprehensive strategy

Develop a total rewards strategy that supports business needs,
and align programs accordingly

Communicate and manage change

Commit to regular dialogue about total rewards
and what it means for employees

Provide transparency
Provide information about pay and benefit levels,
and how they correlate with employee performance

Move from transactional rewards

to relational rewards
Pay and benefits must be competitive; you must pay to play,
but you win through exceptional learning and development
and work environment gains

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Thank you

Questions?

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Our contact information

Lois Grubb
Vice President, Human Resources
Elmhurst Memorial Healthcare
lgrubb@EMHC.org

Eric Parmenter
Principal
Towers Perrin
Chicago Office
71 South Wacker Drive
Suite 2600
Chicago, IL 60606
eric.parmenter@towersperrin.com

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